GST on New Residential Premises in Australia

What it is

A sale of new residential premises in Australia is a taxable supply under the GST Act, so the vendor must remit 10% GST. Residential rent and the resale of established homes are input taxed, which is why most house sales between owner-occupiers carry no GST. The new-build category sits outside that exemption and catches builders, developers and renovators who sell what they have created.

The framework lives in the A New Tax System (Goods and Services Tax) Act 1999, with section 40-75 setting the meaning of new residential premises and section 75 covering the margin scheme. The 2018 purchaser withholding regime in Schedule 1 of the Taxation Administration Act sits on top of those provisions.

When premises count as "new"

Section 40-75 treats residential premises as new in three situations. They have not previously been sold as residential premises or held under a long-term lease. They have been created through substantial renovations of a building. They have been built to replace demolished premises on the same land.

A five-year rule then cuts the other way. If new premises are held and only used to make input taxed supplies (typically residential rent) for at least five continuous years, they lose their "new" status. A sale after that period is input taxed rather than taxable. The clock resets if the property is taken off the rental market or used for non-residential purposes during the five years.

The 10% headline rate and the margin scheme

The default position is that GST equals 1/11 of the GST-inclusive sale price. On a $1.1 million new townhouse, that is $100,000 payable by the vendor.

The margin scheme in Division 75 offers an alternative for eligible supplies. GST is calculated as 1/11 of the margin, which is the sale price minus the consideration paid for the property (or a 1 July 2000 valuation for pre-GST holdings). The scheme can only be used where the vendor acquired the property in a way that did not include GST charged under the basic rules. Both parties must agree in writing to apply the margin scheme on or before settlement.

Purchaser GST withholding at settlement

Since 1 July 2018, purchasers of new residential premises (and potential residential land) must withhold an amount at settlement and pay it directly to the ATO. The amount is generally 1/11 of the contract price for a fully taxable supply. Where the margin scheme applies, the withholding is 7% of the contract price, even though the actual GST payable on the margin may be lower or higher.

The vendor must give the purchaser a written notice before settlement stating whether withholding applies and, if so, the amount. The purchaser lodges Form one (GST property settlement withholding notification) and Form two (date of settlement) through the ATO portal or via PEXA. Failure to withhold can expose the purchaser to a penalty equal to the withholding amount.

Practical points for builders and developers

The price quoted to a buyer is GST-inclusive unless the contract clearly says otherwise. Vendors registered for GST should model both methods early because the margin scheme can swing the net result by tens of thousands of dollars on a single lot.

Input tax credits are available on construction costs when the eventual sale is taxable. If a builder swaps tack and rents the dwelling instead, the change in use triggers an adjustment under Division 129.

GST returns sit alongside the broader contract risk picture covered in entries on fixed price contracts, provisional sums and liquidated damages. Treat the tax position as a deliverable at contract drafting, not as a settlement-day surprise.